There’s a looming bump in the road for broker-dealers who benefited from investors flocking to do-it-yourself retail platforms during the past few years, according to J.D. Power’s 2022 U.S. Self-Directed Investor Satisfaction Study.
That’s because a significant percentage of the 25 million investors who opened accounts during the past three years are experiencing significantly more problems with their accounts and lower levels of customer satisfaction, resulting in brand loyalty scores that are less than half those of more tenured clients, according to the annual study of 4,888 investors released today.
“Pandemic-era investors who entered the financial markets during a real gold rush period of heightened expectations, significant disruption and extreme volatility represent a unique set of challenges for retail brokerage firms,” said Michael Foy, senior director and head of wealth intelligence at J.D. Power.
Pandemic-era investors are more than twice as likely to switch brokerage firms than those who have had their accounts for three or more years, the study found.
Just 24% of pandemic-era investors say they definitely will not switch providers, which is down 11% from a year ago. Among investors who have had accounts for three or more years, 50% say they definitely will not switch providers. Primary drivers of attrition risk include lack of satisfaction with products, services and tools and recommendations from friends and relatives to switch providers, J.D. Power said.
T. Rowe Price ranked highest in self-directed investor satisfaction among investors also seeking guidance, the survey said. Vanguard ranked second and Charles Schwab ranked third.
Vanguard ranked highest among purely self-directed investors’ satisfaction, Charles Schwab ranked second and Fidelity ranked third.
With trading fees no longer a significant revenue driver “the big opportunity for retail brokerage firms is creating loyal clients who will deepen their relationships to include revenue-generating services that address their broader financial needs for things such as advice, cash management and lending,” Foy said.
“Right now, that’s precisely where many firms are dropping the ball," he continued. "They are struggling to meet their clients where they are at this point in their lives and deliver the type of personalized advice, educational tools and problem-free experiences they need to grow with their firms."
So far, advice offerings for do-it-yourselvers that provide the option of interacting with a financial professional from a firm’s call center pool are not resonating with investors, J.D. Power said.